‘Cypriot government agencies should be held accountable for crisis’

People queue up outside a Bank of Cyprus branch in the Cypriot capital, Nicosia.(AFP Photo / Yiannis Kourtoglou) / AFP

The Bank of Cyprus announced that major depositors will receive about 40 percent of their money shares, and the rest will be frozen. Finance blogger Karl Denninger says the problem is not the stolen money, but the government that enacted this policy.

Government regulatory organizations and people who work for them
should be held accountable for approving financial institutions
apparently doomed to failure, Denninger told RT.

RT:These shares that people could be offered, given the
financial meltdown in the country, are they even worth anything
now?

Karl Denninger: Probably not. The real problem is that
European Union assured everybody and Cyprus that these banks were
perfectly fine and there is nothing wrong. This is the same sort of
thing that happened here in the United States. People seem to
forget that a few years ago IndyMac bank was supposedly just fine.
In point of fact, members of our regulatory agencies were involved
with backdating deposits which made them look sounder than they
really were, and when the bank failed those people that set deposit
limits, just what happened here in Cyprus, got wiped out.

So the issue isn't whether or not the shareholders, the bondholders
and ultimately the depositors should bear the risk when this kind
of thing happens. It's that you have government agencies and
people, who work for these government organs that made false
statements about the solidity of these institutions, and if you lie
to somebody and they lose money you should be held to account for
it.

RT:Why would the government push forward with the levy,
after the Parliament rejected it a week ago?

KD: There is a real problem here, because the parliament
said no to this scheme at the risk of knowing that this could lead
them to having leave the euro and to fulfill these obligations. And
what European Union did, they went around the parliament passing
the series of bills that were allegedly not to do that sort of
thing and then use them as a backdoor way to cease these banks. We
have seen this repeatedly since 2007 when this crisis first broke
across the world. And it continues.

The reality is that these agencies and institutions will not tell
the truth. And so if you are a depositor if you have money in banks
in Spain or Italy or even in the United States, how do you know
when there is a risk? The only answer is that you must assume that
you can have your money stolen at any point in time.

RT:Cyprus is living off its financial sector as a major
offshore hub. Isn't it biting the hand that's feeding it by hitting
investors in their banks?

KD: Even worse than that. There were branches of the Cypriot
banks that were open in London during the time that they were
closed in Cyprus. So if you were Russian that have great deal of
money in these banks, or you were some kind of other off-shore
person, who had money in these banks and you had some cash, you get
on the plane, go to London and then you take all your money out.
While the small business person in Cyprus who has his money there
and needs to make payroll has his stolen.

So the people who were supposedly doing their money laundering got
all their money out, it's the common business person in Cyprus that
took it on a chin. And the reality of this is that it is going to
lead to massive layoffs. Now when the money is gone, what are you
going to pay people with?

RT:Do you think this raid on deposits could become a
template for future bailouts in the EU? How worried should people
be?

KD: Very. In fact, the Canadian government just released a
budget document and on the 143rd page of it there is an exact same
template used in Cyprus. For everyone who thinks this is limited to
a little island nation in the Mediterranean you got another thing
coming. And again, it is not that the loss shouldn't be bore by
these people in order, if that is in fact the case.

The problem is that you have government regulatory scheme both in
Europe and in other nations where they are supposed to be
monitoring these institutions and closing them before they get in
trouble like this. They are deliberately not doing their job. And
then when there is a problem all of a sudden these people have
nothing to do with this lack of actions, unlike those who end up
taking it on the chin.